Contextual interpretation of statute leads to quashing of regulator's decision

In R (on the application of UK Power Networks (Operations) Ltd) v Gas and Electricity Markets Authority[2017] EWHC 1175 (Admin), the Claimant, UK Power Networks (Operations) Limited ("UKPN") challenged the Gas and Electricity Markets Authority's ("GEMA") decision to require it to pay Willmott Dixon Construction Limited ("Willmott Dixon") interest on advance payments made for electricity connection works. Ouseley J had to determine the correct statutory interpretation of sections 19 and 20 of the Electricity Act 1989 (the "Act") which set out the provisions on 'reasonably incurred expenses' and interest payments on 'security' taken.

Key Points

• The Act had to be construed in the context of a regulated regime whose aim was consumer protection.
• The court rejected GEMA's approach which would have led to unnecessary rigidity over the simple structure of the broadly expressed provisions contained in the Act to no clear advantage to consumers.

Background

Willmott Dixon applied to UKPN for electricity connection works at a construction site in Woolwich. UKPN required Willmott Dixon to pay the costs of connection, in three instalments, in advance of commencement of the works.

After completion of the works, Willmott Dixon complained to UKPN that it ought to have been paid interest on the three advance payments by virtue of section 20 of the Act, but UKPN disagreed.

Willmott Dixon referred the dispute to GEMA, who issued their decision in July 2016. GEMA concluded that it was only possible to take advance payments by way of security, upon which interest was required to be paid.

GEMA's decision depended upon an issue of statutory construction of sections 19 and 20 of the Act. Section 19(1) allows expenses "reasonably incurred" to be paid by the party requiring connection. Section 20(1) allows "reasonable security" to be taken, and where this occurs, under section 20(3) the distributor "shall pay interest". The issue was whether a request for advance payment could only be taken by way of security under section 20.

GEMA's primary submission was that staged payments were expressly prohibited under the Act and, if any staged payments were made, they could only be taken by way of security under section 20 for which interest would have to be charged.

Decision

Ouseley J found that GEMA was wrong and its decision had to be quashed. Looking at the nature of the Act overall, Ouseley J noted that the provisions were expressed in general language and the regime could not be said to be tightly prescribed. In fact, the language used is broad and permissive rather than restrictive or prohibitory. An "important point" was that section 19 itself contained no express provision prohibiting advance payment, whether in full or in stages.

Ouseley J did not find the arguments in relation to the ordinary reading of the provisions in dispute helpful to the case. For example, the phrase "reasonably incurred" suggested a reference to costs that had already been incurred, but that was not the only reasonable interpretation. Furthermore, as regards the meaning of 'security' under section 20, it was held that "a payment for works to be done is not "security for payment" that works be done", with Ouseley J noting the unconvincing arguments on the ordinary reading of 'security'. GEMA argued that if section 20 did not apply to advance payment, then the section was rendered irrelevant. However UKPN responded with practical evidence of circumstances where the requirement to take security could have a role (such as where the customer requiring connection lacks title to the land and security is taken to cover contingencies that could arise). As a result, the sections give "both sides flexibility in how risk and payment for s19 expenses are covered".

Additionally, Regulations made by GEMA containing the distinction between 'payment' and 'security' were not given much weight, noting the principles set out in Hanlon v Law Society [1981] AC 124 that "to allow Regulations to decide the meaning of an Act would be to substitute the interpretation of the rule-maker for that of the judge, and to disregard the possibility that the Regulations were misconceived or ultra vires". Instead, it was for the court to construe what Parliament enacted.

Considering the statutory context, Ouseley J concluded that in the absence of an express prohibition in section 19 and in view of the logical consequence for commonplace staged payments which are prevalent in construction works (and connection works in particular), GEMA's approach was wrong. GEMA's approach would produce a convoluted way of dealing with staged works and payment. There was no reason why the distributor could not obtain advance payment, pay no interest on it, but account for the advantage received in price or some other benefit to the customer.

GEMA's approach, Ouseley J considered, was at odds with the flexible approach contained in the Act as it created a problem for the commonplace practice in construction works in general by prohibiting staged payments. He concluded by saying that the determining facts were "the simple structure of the broadly expressed provisions, coupled with the unnecessary rigidity which GEMA's approach would introduce, all, it seemed to me, to no clear advantage to the customer."

Comment

The judgment provides an example of the courts' practical and contextual approach to the interpretation of statute. Although the court considered a wide range of arguments regarding the interpretation of the relevant sections it concluded that if Parliament intended to limit the broadly expressed provisions then it would have expressly done so. The court felt that the practical arguments here held much more weight, given that the alternative arguments being put before it would have led to the prohibition of a common practice in construction works, with no benefit to customers. The judgment illustrates that while the courts are slow to intervene to overturn decisions of regulators involving expertise or technical judgment, they do not show the same deference in matters such as interpretation of statute.

Andrew Lidbetter Partner +44 20 7466 2066 Email	Nusrat Zar Partner +44 20 7466 2465 Email	Jasveer Randhawa Of Counsel +44 20 7466 2998 Email